The Financial Conduct Authority is to make no changes to its rules governing the transition management industry.
The watchdog’s review – its first to cover the sector – found £165bn of assets invested in pensions and other large funds are transferred between investment managers, markets and products every year by 13 specialist providers. Following the Financial Conduct Authority’s (FCA) first review of the sector, firms have today been advised to ensure that their controls, oversight and governance arrangements meet our requirements in all areas.
The report comes just over a week after the FCA fined State Street, £22.9m for deliberately overcharging TM clients. It said it launched the review following similar incidents in recent years.
“Since 2011, a number of incidents have occurred that have raised questions about the role played by TM providers,” the review said. “We have seen failures to manage conflicts of interest, poor governance and insufficient oversight. As a result, we conducted a high-level review to look at standards across the TM industry.
“Our review sought to better understand the TM market, explore potential weaknesses in managing conflicts of interest and examine senior managers’ understanding of client requirements and the strength of controls.”
It said while TM often “flies below the radar”, firms “broadly met” its requirements. It added however that the quality and effectiveness of controls, marketing materials, governance and transparency varied and urged providers to ensure their controls, oversight and governance arrangements meet its requirements. It added it would continue to monitor the conduct of TM providers and provide specific feedback where needed.
FCA director of supervision Clive Adamson said investors in need of TM services often lacked the internal capabilities to pick up on conflicts of interest or poor governance issues.
“Often, the pension funds or other clients commissioning TM services are unfamiliar with the process,” said Adamson. “As a result, they may not be aware of potential conflicts of interest, or understand how the way the transaction is being carried out could affect the value of their assets.”
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